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What is a Credit Union & Are They Required to be NCUA Insured?

what is a credit union

Sometimes, people use the words "bank" and "credit union" interchangeably, but the reality is that credit unions are not the same as banks. While they offer most of the same services, they have different priorities than banks and offer different benefits to members.

Leaders Credit Union is a not-for-profit, NCUA-insured credit union. We always want our members to know that their money is safe with us. With that in mind, here is an overview of what credit unions are, what they do, and why they are required to be NCUA insured.

What is a Credit Union?

Credit unions provide most of the same services as banks, but they do it for a different purpose. Simply stated, a credit union is a not-for-profit financial institution where the members are owners. 

A credit union doesn’t have shareholders because the only people who have an interest in the profits of a credit union are its members – people who have accounts, loans, or credit cards with the credit union.

Another way of looking at it is that credit unions exist to provide a safe and convenient way for members to save money and loan money to each other at affordable interest rates.

Many credit unions limit their membership to certain areas or groups. For example, Leaders Credit Union got its start as the Jackson-Madison County Teachers Credit Union. Over the years, we have merged with other local credit unions whose members included hospital workers and journalists. 

Today, our membership is open to many residents of West Tennessee, including anybody living, working, worshiping, or attending school in Madison, Chester, Dyer, Haywood, Lake, Lauderdale, or McNairy Counties, as well as parts of other Tennessee counties.

What Are the Differences Between Credit Unions and Banks?

While credit unions and banks provide nearly identical services, there are some important distinctions between the two. These differences apply to the way rates and fees are determined, as well as to the governing philosophy of the financial institution itself.

Here are the most important differences between credit unions and banks.

Credit Unions Are Not Operated for Profit; Banks Are

The first and most important difference between credit unions and banks is that credit unions are not operated for profit and banks are. Every bank has a board of directors and shareholders. The bank’s primary goal as an institution is to make money for their shareholders.

By contrast, credit unions are owned by members, making them cooperative institutions where all profits are returned to members in the form of lower rates and fees and higher dividends than what you might find at a bank. A credit union’s primary goal is to serve its members, providing them with a safe and convenient place to keep their money and watch it grow.

Credit Unions Work with Members to Achieve Their Goals; Banks Do Not

The next key difference between credit unions and banks is that banks often have rigid requirements for lending. They are bound to their shareholders and one of the ways that philosophy reveals itself is in the way banks treat their account holders. If your credit score doesn’t meet a bank’s requirements, there is not likely to be any wiggle room to help you get a loan or buy a house.

That’s not the case with credit unions. Credit unions serve the purpose of providing financial guidance and tools to their members. For example, Leaders Credit Union’s purpose is to help our members lead themselves to their financial goals. We’re not the hero of the story; our members are.

It’s for this reason that credit unions are often willing to work with members who might not have a high enough credit score to get a mortgage or auto loan with a bank. We have less-stringent underwriting guidelines because we believe that everybody deserves a chance to make their financial dreams a reality.

Credit Union Rates and Fees Are Lower Than Bank Rates and Fees

The third key difference between credit unions and banks is that credit union fees are designed to be affordable, giving members the chance to borrow money or spend on credit without absorbing excessive expenses. 

As we have already noted, banks are beholden to their shareholders and they set their rates and fees accordingly. They want to be able to report a profit at the end of each quarter and their purpose is to pass their profits on to shareholders.

It is often far less expensive to borrow money from a credit union than it is to borrow from a bank. 

Credit Unions Provide More Financial Tools and Resources to Members

Because credit unions are owned by their members, it is a priority to provide members with as many financial tools and resources as possible to help them learn how best to manage their money and grow into financial strength and security.

Many credit unions have blogs that explain financial products, provide tips to achieve financial goals, and offer practical advice about accounts and investments. It’s also common for credit unions to provide detailed guides explaining more complex topics.

Credit unions may also provide free calculators, webinars, videos, and other materials. There is almost always a focus on helping members help themselves. Whether you want to buy a house, pay for your child’s college education, or save for retirement, a credit union will have the tools you need to help you achieve your goals.

What is the NCUA?

If you’ve ever had a bank account, you probably know that account balances in banks are insured by the Federal Deposit Insurance Commission, more commonly known as the FDIC. The FDIC:

…insures deposits; examines and supervises financial institutions for safety, soundness, and consumer protection; makes large and complex financial institutions resolvable; and manages receiverships.

The FDIC does not insure deposits in credit unions. Instead, credit unions are governed by the National Credit Union Administration, or NCUA. The NCUA operates as an independent federal agency and supervises and insures 98% of all credit unions in the United States, including all federal credit unions and most state chartered credit unions.

The National Credit Union Administration protects federally insured credit unions by working in tandem with another organization, the National Credit Union Share Insurance Fund, or NCUSIF, which was created by Congress in 1970. The NCUSIF insures all credit union deposits. No insured credit union may revoke its insurance unless the NCUA ends its membership.

Why Are Credit Unions NCUA Insured?

Credit unions are NCUA insured to protect their members and provide security for their deposits. The NCUSIF is administered by the NCUA. It provides the following protection:

  • Individual accounts up to $250,000
  • A member’s interest in all joint accounts combined up to $250,000
  • IRA accounts up to $250,000
  • KOEGH retirement accounts up to $250,000

There is additional protection available for any trust accounts belonging to members. The NCUSIF is backed by the full faith and credit of the United States. It may interest (and reassure) you to know that credit union members have never lost any insured savings at a federally insured credit union.

NCUA insurance is there to provide members with peace of mind that their money is protected even if something should happen to their credit union. Credit unions are often substantially smaller than banks and may be perceived as less stable, although that’s not the case.

Leaders Credit Union is NCUA insured. We are ranked in the top 10% of the strongest credit unions in the state of Tennessee by Callahan and Associates, a respected company that analyzes and rates financial institutions. We have received five consecutive five-star ratings from Bauer Financial. We have also received an A rating from Weiss Ratings.

What Services Do Credit Unions Provide?

Credit unions provide many of the same services and financial products as banks. Some examples include the following:

  • Mortgage loans
  • Vehicle loans
  • Personal loans
  • Credit cards
  • Checking accounts
  • Savings accounts
  • Investment accounts
  • Financial advisory services

Where you may notice a difference between credit unions and banks is that credit unions may not offer as many account or loan options as large banks. However, they make up for it with lower APRs and higher dividends.

At Leaders Credit Union, we offer a wide array of accounts and services, including high-yield savings accounts, rewards credit cards, and affordable home loans. We have partnered with various government agencies such as the FHA, the USDA, the VA, and the THDA to put the dream of homeownership within reach for our valued members.

As a Leaders Credit Union member, you’ll get access to better interest rates and lower fees than you would find at a bank. You’ll also find that Leaders members can earn dividends that are significantly higher than the national average APY for traditional savings accounts. We’re happy to work with you to give you the advice and guidance you need to power yourself toward a financially secure future.

Are You Ready to Become a Member?

Credit unions offer many of the same services as banks while putting the needs and financial security of our members before profits. When you join a credit union, you become part of a community that works together to build financial strength – that's the credit union difference.

Are you a resident of West Tennessee? We would love to have you as a member! Click here to read the membership requirements and join.